Baker v. Great N. Energy, Inc.

• Decision Date: 03 December 2014
• Docket Number: Civil Action No. 3:14–CV–0240–B.
• Parties: Burdick BAKER, Plaintiff, v. GREAT NORTHERN ENERGY, INC., Joseph B. Loftis, Ronald James Abercrombie, Arklatex Minerals, LLC Nicole L. Martin, Defendants.
• Court: U.S. District Court — Northern District of Texas

64 F.Supp.3d 965

Burdick BAKER, Plaintiff

v.GREAT NORTHERN ENERGY, INC., Joseph B. Loftis, Ronald James Abercrombie, Arklatex Minerals, LLC Nicole L. Martin, Defendants.

Civil Action No. 3:14–CV–0240–B.

United States District Court, N.D. Texas, Dallas Division.

Signed Dec. 3, 2014.

Jonathan C. Scott, Jonathan C. Scott PC, Highland Park, TX, for Plaintiff.

Natalie Marguerite Cooley, Greg W. Curry, Thompson & Knight LLP, Dallas, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

JANE J. BOYLE, District Judge.

Before the Court is Defendants' Motion to Dismiss for Failure to State a Claim or, in the Alternative, Motion to Compel Arbitration and Dismiss Action or Stay Proceedings (doc. 25) (the “Motion”). For the reasons that follow, the Court GRANTS the Motion to the extent it seeks dismissal for failure to state a claim, and DENIES AS MOOT the Motion to the extent it seeks to compel arbitration.

I.BACKGROUND

This case involves an oil and gas investment gone bad.¹ The investor who filed this suit is Burdick Baker (“Baker”), a resident of Colorado. Doc. 1, Compl. ¶ 5. Baker brings this action against five Defendants including Great Northern Energy, Inc. (“Great Northern”), a Texas-based corporation involved in oil and gas, three current and former executives at Great Northern—James Loftis (“Loftis”), Ronald James Abercrombie (“Abercrombie”), and Nicole L. Marti (“Marti”)—and Arkatex Minerals, LLC (“Arkatex”), a Texas-based entity “owned or controlled by Loftis and Abercrombie.” Id. ¶¶ 6–10, 20.

The events in this case date back to “the summer of 2012,” when Baker first “met or spoke over the phone at various times with Defendant Loftis (who held himself out as the President of Great Northern) to discuss investment opportunities.” Id. ¶ 14. At that time, Loftis indicated “that the investment would be very lucrative” and “would generate a substantial return.” Id. ¶¶ 13, 43. Loftis also represented “that the oil and gas [interests] were already profitable and producing oil,” and “that Great Northern was producing more than 300 gross barrels per day of oil from its operations.” Id. ¶¶ 14, 43. Loftis further assured Baker “that he was experienced, well regarded and honest operator with a long track record of successful results for investors.” Id. ¶ 15.

Relying “upon said representations,” Baker subsequently agreed to invest “with Great Northern.” Id. ¶ 16. In accordance with this alleged agreement, Baker, “[o]n July 7, 2012 and September 26, 2012 and on dates thereafter,” sent Great Northern a number of payments. Id. ¶ 23.

At some point, Baker discovered that his investment in Great Northern was not all that Loftis had represented. For one, Baker claims that “Defendants did not have the resources necessary to maximize the value of the assets” and “had substantial undisclosed debt[ ] and adverse claims.” Id. ¶ 47. Loftis, Abercrombie, and Marti also allegedly “treated Great Northern as their own personal business and ‘cookie jar’ ... without regard for the business or financial rights or interests of the investors.” Id. ¶¶ 30, 45, 47. Similarly, Defendants supposedly “concealed from [Baker] that [Great Northern] had sold proceeds from production [ ] to Arkatex,” which Defendants Loftis and Abercrombie “owned or controlled.” Id. ¶¶ 20, 45. And unbeknownst to Baker, Loftis purportedly had a $2 million default judgment entered against him shortly before negotiations with Baker and was once convicted “of bank fraud in connection with the use of an (sic) proceeds from a transaction.” Id. ¶¶ 15, 44.

Presumably distressed over his investment, Baker “entered into a written agreement” with Great Northern on June 5, 2013 in which Great Northern “promis [ed], among other things, to repurchase the interest sold to [Baker] and his two brothers.” Id. ¶ 25. Great Northern allegedly “breached that agreement, when, it issued a check that was not backed by sufficient funds at the time of issuance and by failing to perform the agreement by [the] June 29, 2013 date set for performance.” Id. ¶ 26. After its “initial breach,” Great Northern “remitted to [Baker's] counsel various funds that counsel is holding in escrow,” which Baker has refused to accept. Id. ¶ 27.

On January 22, 2014, Baker filed suit against Defendants. His Complaint sets forth eleven different “Claim[s] for Relief.” These include: (i) breach of contract (against Great Northern only); (ii) common law fraud (against all Defendants except Arkatex); (iii) a single securities fraud claim filed pursuant to § 10(b) of the Securities and Exchange Act of 1934, Rule 10b–5 promulgated thereto, and analogous provisions of the Texas Securities Act and Colorado Securities Act (against all Defendants except Arkatex); (iv) another securities fraud claim filed pursuant to § 12(2) of the Securities Act of 1933 (against all Defendants except Arkatex); (v) negligence (against all Defendants except Arkatex); (vi) misrepresentation (against all Defendants except Arkatex); (vii) breach of duty of good faith and fair dealing (against Great Northern); (viii) conspiracy (against all Defendants except Arkatex); (ix) rescission/mistake (against all Defendants);² (x) a Texas Uniform Fraudulent Transfer Act claim (against all Defendants); and (xi) a Texas Theft Liability Act claim (against all Defendants). See id. ¶¶ 33–106.

On March 14, 2014, Defendants jointly filed the present Motion. In it, Defendants first seek dismissal of all eleven claim in the Complaint for failure to properly state a claim upon which relief may be granted. See Doc. 25, Def.'s Mot. 1–18. In the alternative, Defendants move to compel arbitration and dismiss or stay the proceedings in light of an arbitration agreement between Baker and Great Northern signed in 2012. See id. at 18–21; Doc. 25–1, Ex. A (Operating Agreement).³ In response, Baker asks the Court to deny all relief requested in Defendants' Motion. See Doc. 28, Pl.'s Resp. 1. On May 2, 2014, Defendants filed their Reply (doc. 29), rendering this Motion ripe for consideration. As seen below, the Court only reaches Defendants' first requested relief at this time—dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.

II.RULE 12(b)(6) LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal for failure to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). For a complaint to survive a Rule 12(b)(6) motion, it must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A facially plausible complaint does more than plead “facts that are ‘merely consistent with’ a defendant's liability.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955 ). Rather, a facially plausible complaint “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. If the allegations raise no entitlement to relief, “this basic deficiency should ... be exposed at the point of minimum expenditure of time and money by the parties and the court.” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir.2007) (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955 ).

In reviewing a Rule 12(b)(6) motion, courts “must accept [all] well-pleaded facts” as true. Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir.2005). Likewise, all well-pleaded facts must be “construed ... in the light most favorable to the plaintiffs.” Kopp v. Klein, 722 F.3d 327, 333 (5th Cir.2013). However, courts need “not accept as true conclusory allegations, unwarranted factual inferences, or legal conclusions.” Plotkin, 407 F.3d at 696 (citing Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 361 (5th Cir.2004) ).

III.ANALYSIS

Defendants' Motion seeks dismissal of all eleven of Baker's claims pursuant to Rule 12(b)(6), including the Complaint's breach of contract claim, various fraud-related claims, and other state tort causes of action. While Defendants also move in the alternative to compel arbitration, the Court only reaches Defendants' request for dismissal pursuant to Rule 12(b)(6) in its below analysis. This is because, for the reasons that follow, the Court agrees with Defendants that none of the Complaint's eleven claims are adequately pled, and as such, whether these claims should be arbitrated is, at present, a moot issue.

A. Breach of Contract (First Claim for Relief)

Baker's first claim is for breach of contract under Texas law. “In Texas, ‘the essential elements of a breach of contract action are: (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by the plaintiff as a result of the breach.’ ” Smith Int'l, Inc. v. Egle Grp., LLC, 490 F.3d 380, 387 (5th Cir.2007) (quoting Valero Mktg. & Supply Co. v. Kalama Int'l, L.L.C., 51 S.W.3d 345, 351 (Tex.App.2001) ) (brackets omitted).

Baker's Complaint asserts two contracts that Defendant Great Northern allegedly breached. First, “[i]n 2012, [Baker] entered into an agreement with defendant Great Northern” whereby Baker “purchased a working interest in certain wells and production,” and in return, “Great Northern was required to account for operations and to pay [Baker] the sums he was due as a result of his interest.” Compl. ¶¶ 33–34. Great Northern allegedly “breached its obligations” under this 2012 agreement “by failing to account and pay the sums due.” Id. ¶ 35. Second, Great Northern and Baker also entered into “a contract dated June 5, 2013,” which Great Northern allegedly “breached ... by failing and refusing the (sic) pay monies due [Baker] in accordance with its terms.” Id. ¶ 37.

Defendants argue that these allegations are too vague and conclusory to survive a Rule 12(b)(6) challenge. They highlight that the Complaint fails to identify “the alleged ‘sums' [or] ‘monie...